The headlines coming out of Karachi recently look like those I saw when I lived there in the early 1990s, underscoring dozens of people killed in city violence daily. But there is a complicating factor today that propels these headlines into the global spotlight: "Talibanization."

In the 1990s, the Taliban were easily understood as a brutal, fundamentalist force unique to Afghanistan. But today, the "Taliban" has spread, splintered, and adopted local guises, so that it is almost impossible to define. In Pakistan’s sprawling, urban metropolis of Karachi — with twice the population of New York City but with one-third living in slum-like conditions — the Taliban is hardly the enemy that the international community originally conceived.

Karachi has become a favorite spot for war-weary militants from Pakistan’s northern areas to rest, recoup, seek medical treatment, and hide out. They integrate easily into the city’s sprawling Pashtun and Afghan slums that sit at the major entry and exit points of the city. According to a Taliban commander from South Waziristan, "We are more alert and cautious following the drone attacks, we understand that it is not a wise approach to concentrate in a large number in the war-torn areas." He says groups of 20 to 25 militants will fight for a few months and then "take leave" for a month in cities including Karachi. Mullah Omar has reportedly visited Karachi several times in recent months.

In an Urdu-language news report uploaded in August 2008, Tehrik-i-Taliban Pakistan spokesman Maulvi Omar offers a chilling but clear picture of the group’s reach in the southern port city:

Karachi, praise be to God, is ours. There are mosques, madrassas, ulema, and talibs [religious students] there. We have a right to be in Karachi. Until now, the Taliban has not done anything in Karachi. We are there and we are strong, but there is no need [to attack] — there are no Americans there, no Indians. But if the time comes, we will see who Karachi belongs to, the MQM or the Taliban.

But militants are not the only new arrivals. Karachi has long been a city of immigrants, straining the city’s resources and making it an ethnic tinderbox. With war raging in the north, areas settled by Afghans and displaced Pakistanis have swelled by as many as 200,000 people, and aggravated ethnic tensions within the local population. The dimensions of such sensitivities can be confounding: during Pakistan’s IDP crisis in the summer of 2009 when the Pakistani army was conducting operations on Swat, businesses went on strike — shutting down in Karachi and across Sindh — to protest the influx of IDPs from the north.

Ethnic conflict has fed into political warfare, helping to explain the recent spate of targeted killings. If you drove across Karachi, and paid attention, you would see endless slums staked out by flags denoting political parties: Awami National Party (ANP), Muttahida Quami Movement (MQM), Pakistan Peoples Party (PPP), and many others. The ANP has its base among ethnic Pashtuns, the MQM represents the majority of mohajirs (Indian Muslims who originally migrated to Pakistan during Partition in 1947), and the PPP are mostly native Sindhis. In the early 1990s, the MQM was embroiled in conflict with the Sindhis. Today, the MQM is fighting with the ANP, in what can look like urban warfare between Pashtuns and mohajirs.

The conflict-ridden city is also highly weaponized, multiplying the concerns of both residents and observers. According to the head of criminology at Karachi University, "Karachi has more bombs, dynamite, and Kalashnikovs than any other city in Pakistan."

While some allege that the MQM uses "Talibanization" as an excuse to pursue a political and ethnic agenda against the ANP and their constituent base of Pashtuns, police and intelligence reports indicate that the Taliban threat is real.

American officials have identified Karachi as the headquarters of the Taliban’s fundraising committee. Their criminal activities are impressive: kidnappings, bank robberies, trafficking in drugs and weapons, and extortion. The Taliban generates millions of dollars through criminal activities in Karachi, with one-third of bank robberies and ten percent of kidnappings linked to the Taliban, and average ransom sizes of $60,000 to $250,000. In one kidnapping of a Karachi businessman providing fuel to NATO forces in Afghanistan, the family agreed to pay $2.5 million. A bank robbery worth $2 million was linked directly to Baitullah Mehsud, the founder of the Tehrik-i-Taliban Pakistan who was killed in a drone strike in August of 2009.

The Karachi police carry out up to three raids a day, arresting militants and disrupting plots, including possible attempts on the Karachi port and NATO convoys. Weapons caches uncovered in neighborhoods such as Sohrab Goth are described in alarming detail: explosives, suicide jackets, rocket launchers, bomb-making materials, hand grenades, Kalashnikovs, and gas masks, along with hashish and heroin.

Why should Karachi’s domestic violence matter to those beyond it? Three simple reasons: U.S. and NATO troops, Pakistan’s economy, and Afghanistan’s economy, depend on the semblance of stability in Karachi.

The Karachi port is the origination point for 40 percent (once 80 percent) of NATO supplies. Bruce Riedel, a counterterrorism expert and policy adviser to U.S. President Barack Obama, told me in December 2009, "Almost everything that U.S. soldiers eat, drink, wear, and shoot, comes through the port of Karachi. If anything happens, our troops will be subsisting on local food and water."

Once materials are loaded onto trucks, they pass through Sohrab Goth, an oft-raided neighborhood known to host Taliban safe-houses that forms a chokepoint around the highway leading out of the city. If the militant attacks on NATO trucks in the past few weeks have only been a "nuisance," then a more effective disruption of the NATO supply chain would be an attack on the port of Karachi. Pakistani intelligence has identified it as a soft target that could be hit.

Even if NATO convoys continue to make it through Karachi unmolested — perhaps because local officials and insurgents are being paid off to let them pass, as is happening along the rest of the chain and in Afghanistan — the city’s stability is still critical to the success of American strategy in the region. Karachi is Pakistan’s financial, industrial, and commercial hub, generating 68 percent of the government’s revenue and 25 percent of Pakistan’s gross domestic product. It is also transit point for 60 percent of landlocked Afghanistan’s exports.

Karachi’s significance is often missed because there is little Americans can do about threats facing the city. The United States does not have a military ground presence in Pakistan as it does in neighboring Afghanistan, insecurity makes it hard for diplomats to move around, relations with Islamabad are prickly, and the country is increasingly mired in its own debilitating natural and political disasters. For all of the United States’ talk about Pakistan being the "epicenter" of American concerns, most American counterterrorism efforts are exerted on the tribal areas neighboring Afghanistan, where militants, including bigwig (or bigbeard) Osama bin Laden, are believed to be hiding.

As safe havens become safe houses, the U.S. should reassess threats and opportunities in Pakistan. The threat is an amorphous Taliban that has a remarkable ability to associate itself with, claim credit for, and foment local conflict. As in Afghanistan, the Pakistani Taliban exploits local grievances and tensions that pre-date its own existence. The U.S. can never defeat the Taliban in Pakistan unless it understands the motley issues the groups think they are fighting for.

The opportunity is a more localized strategy, which exploits local levers of security, calibrated by American diplomats and other civilian representatives. In Karachi, the U.S. can start by building or improving working relationships with city officials and civil society; augment the existing efforts of Karachiites to improve their own security, stability, and economic prosperity; and invest aid in alleviating the city’s stunning poverty. Some of the most unstable parts of the city are also its poorest.

The U.S. should also focus on expanding economic opportunity and creating jobs in places like Karachi, which has high untapped capacity, and reconsider the value of trade over aid as the European Union has done recently by adopting trade preferences for Pakistan. Heavy migration between Karachi and northwestern regions — 30 percent of Karachi’s people are Pashtun according to various estimates — means that investment in the city’s economic potential may have higher returns than direct and precarious aid projects in the tribal areas.

Crime and ethnic tensions are intensifying in Karachi. If the Taliban are reincarnating themselves in urban spaces, turning towards crime and abetting ethnic and sectarian warfare, then the real battle in Pakistan may not be catching and killing militants, but maintaining everyday law and order.

Nadia Naviwala is a recent graduate of Harvard’s Kennedy School, where she was a student fellow with the Belfer Center for Science and International Affairs. She has served as a national security aide in the U.S. Senate. Her research on U.S. aid to Pakistan can be found here. This piece has been updated from an earlier version.